Dividend Payments & Waivers UK: Rules & Process

What this document is

A dividend is a distribution of a company's distributable profits to its shareholders, usually paid in proportion to the shares they hold. Dividends can only lawfully be paid out of profits available for the purpose, which broadly means accumulated realised profits less accumulated realised losses.

If a company pays a dividend without sufficient distributable reserves, the payment can be clawed back and the directors who approved it may be personally exposed. There are two common types. An interim dividend is decided by the directors during the financial year and can usually be paid without a shareholder vote, depending on what the articles say.

A final dividend is typically recommended by the directors and then declared by the shareholders after the year end, often alongside the annual accounts. Either way, the decision needs to be properly recorded, the company needs the profits to support it, and each shareholder should receive a voucher showing what they have been paid.

How to use this document

1. Check that distributable profits are available. Before anything else, the directors need to satisfy themselves that the company has enough distributable reserves to cover the proposed dividend. This usually means looking at the most recent annual accounts, or relevant interim accounts if the year end figures are out of date, and confirming there are realised profits left over after previous distributions.
2. Hold a board meeting and record the decision. The directors should meet (or pass a written resolution where the articles allow it) to either declare an interim dividend or recommend a final dividend to the shareholders. The board minutes should record the amount per share, the class of shares affected, the payment date, and confirmation that the directors have considered the availability of profits.
3. Obtain shareholder approval where required. For a final dividend, the shareholders usually need to approve the payment by ordinary resolution, either at a general meeting or by written resolution. Interim dividends normally do not need a shareholder vote, but it is worth checking the articles because bespoke articles can change this.
4. Pay the dividend and issue a tax voucher. Once the dividend is properly declared, the company can make payment to each shareholder on the register at the record date. Every shareholder should receive a dividend voucher showing the company name, the date, the shareholder's name, the amount paid, and the number of shares the payment relates to. This helps shareholders complete their personal tax returns.
5. Keep the paperwork with the company's records. Board minutes, shareholder resolutions, copies of the vouchers, and any waiver deeds should be kept with the statutory books. If HMRC, a future buyer, or a lender ever questions a distribution, clean paperwork is what shows the dividend was lawfully paid rather than being recharacterised as salary or a director's loan.

Common questions